Fitch Rates NextEra Energy Capital Holdings' Hybrids 'BBB'

January 17, 2013 02:24 PM Eastern Standard Time

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned ratings of 'BBB' to NextEra Energy Capital
Holdings Inc.'s (Capital Holdings) issue of up to $488.75 million 5.00%
series J junior subordinated debentures due Jan. 15, 2073. The
debentures will be unconditionally and irrevocably guaranteed by NextEra
Energy, Inc. (NEE). The net proceeds from this issue along with other
general funds will be used to repay a portion of Capital Holdings'
outstanding commercial paper obligations (which stood at $1.6 billion as
of Jan. 14, 2013) and for general corporate purposes. The Issuer Default
Rating (IDR) of NEE and Capital Holdings is 'A-', and the Rating Outlook
for both is Stable.

The debentures are junior and subordinated in right of payment and upon
liquidation to all of Capital Holdings' senior indebtedness. The junior
subordinated guarantee from NEE is unsecured, will rank junior, and will
be subordinated in right of payment and upon liquidation to all of NEE's
senior indebtedness. So long as there is no event of default under the
subordinated indenture, Capital Holdings may defer interest payments on
the debentures on one or more occasions for up to 10 consecutive years
per deferral period.

The securities are eligible for 50% equity credit under Fitch's
applicable criteria 'Treatment and Notching of Hybrids in Nonfinancial
Corporate and REIT Credit Analysis' dated Dec. 13, 2012. Features
supporting the equity categorization of these debentures include their
junior subordinate priority, the option to defer interest payments on a
cumulative basis for up to 10 years on each occasion and a 60-year
maturity.

Over 2013 - 2015, NEE's cash flows from stable utility-type sources are
expected to grow. FPL was able to achieve a constructive outcome in its
recently concluded rate case. The utility was allowed a $350 million
rate increase effective Jan. 2, 2013 based on a mid-point Return on
Equity (ROE) of 10.50% with a band of +/- 100 basis points and nearly
60% equity ratio. Importantly, the order provided for a four-year
generation base rate adjustment (GBRA) mechanism, which allows FPL to
raise rates when its three modernization projects, Cape Canaveral,
Riviera Beach and Port Everglades achieve commercial operations in 2013,
2014 and 2016, respectively, without having to file a rate case
proceeding. This not only provides timely recovery on major capital
expenditures but significantly reduces regulatory risk of frequent rate
filings.

At Capital Holdings, completion of new Texas electric transmission
assets will result in predictable tariff revenues. Fitch forecasts that
regulated businesses will contribute more than 55% of NEE's EBITDA for
the next several years. Within Energy Resources, the contribution of
long-term contracted generation assets will increase. Fitch expects
contractual sources to drive another 25% - 30% of NEE's consolidated
EBITDA over the next few years.

NEE's credit metrics, as reported, show more leverage than 'A-' peers.
However, Fitch considers several factors that mitigate debt leverage.
First, sales at Energy Resources are supported by off-take contracts for
a longer term than most other peers (approximately 90% hedged over 2013
- 2014). This provides NEE with greater insulation to commodity price
movements as compared to other hybrid peers. Second, NEE's non-utility
generation is concentrated in renewable and nuclear resources with
favorable environmental characteristics. Finally, about $6.5 billion of
consolidated debt (as of Sept. 30, 2012) is made up of project finance
loans that have limited or no corporate recourse.

Fitch's adjusted consolidated credit metrics for NEE incorporates
off-credit treatment to limited recourse debt at Energy Resources. This
reflects Fitch's assumption that NEE would walk away from these projects
in the event of financial deterioration, including those projects where
a differential membership interest has been sold. Fitch accordingly
excludes the debt, interest expense, EBITDA contribution and tax
attributes from such projects and includes only the distributable cash
flow.

What Could Trigger a Rating Action

Deterioration in Florida Regulation: Any change in current regulatory
policies at the Florida Public Service Commission (FPSC) that adversely
affect the timely recovery of utility capital investments, fuel and
purchased power costs, and storm-related costs would adversely affect
NEE's and FPL's ratings.

Increase in Business Risk Profile: A change in strategy to invest in
more speculative assets, non-contracted renewable assets or a lower
proportion of cash flow under long-term contracts would increase
business risk and could result in lower ratings for NEE. The high level
of capital expenditures at both FPL and Capital Holdings creates
completion risks, as well as funding risk.

Aggressive Financial Strategy: Any deterioration in credit measures that
result from higher use of leverage or outsized return of capital to
shareholders could lead to negative rating actions.

Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT
Credit Analysis'

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